[PDF] A History of the tax-exempt Sector: An SOI Perspective

View - Download A History of the tax-exempt Sector: An SOI Perspective

Previous PDF

Next PDF

105
T he origins of the tax-exempt sector in the

United States predate the formation of the

republic. Absent an established Governmental framework, the early settlers formed charitable and departments, and orphanages, to confront a wide va- riety of issues and ills of the era. These types of vol- untary organizations have continued to thrive in the United States for centuries. In 1831, during his his- toric visit to the United States, Alexis de Tocqueville observed: "Americans of all ages, conditions, and dis- positions constantly unite together. Not only do they have commercial and industrial asso- ciations to which all belong but also a thou- sand other kinds, religious, moral, serious, futile...Americans group together to hold fetes, found seminaries, build inns, construct churches, distribute books...They establish prisons, schools by the same method...I have frequently admired the endless skill with which the inhabitants of the United States manage to set a common aim to the efforts of a great number of men and to persuade them to pursue it voluntarily." 1

Voluntary associations comprised two distinct

types of organizations - public-serving and mem- ber-serving. 2,3

Early public-serving, or charitable,

organizations included schools, churches, and other voluntary organizations designed to provide services to the public. The popularity of voluntary charitable organizations in the United States, even in the midst

of strengthening State and Federal governments, suggests that perhaps these organizations, with their

well-established structures and programs, were able by Paul Arnsberger, Melissa Ludlum, Margaret Riley, and Mark Stanton

Another suggestion is that many early Americans

embraced charitable organizations over Government programs because they feared "the rebirth of monar- chy, or bureaucracy." 4

By the end of the 19th century, private philan-

had joined voluntary associations as an important component of the public-serving charitable sector of the United States. The foundation originated from the charitable trust, a tool for giving that became widely used in this period. 5

In the early 20th cen-

tury, a number of American industrialists, wishing to direct their newly acquired wealth toward a broad range of altruistic endeavors, created private foun- dations that remain prominent today. Unlike other early charitable organizations, private foundations generally were controlled and funded by a single source, such as an individual, corporation, or fam- ily. Andrew Carnegie articulated the vision of these early philanthropists in his essay, "The Gospel of Wealth," where he argued that a wealthy individual should "consider all surplus revenues which come to him simply as trust funds, which he is called upon to administer, and strictly bound as a matter of duty to administer in the manner which, in his judgment, is for the community..." 6

Member-serving associations, including frater-

nal societies, were also popular among early Ameri- cans. The Freemasons, for example, have roots in

17th century England and count a number of this

Nation's founding fathers as members. By the 19th bers in areas such as banking and insurance, began ganizations, established to promote the interests of their members, started to take root across the Nation around this time.

Voluntary associations and philanthropic vehicles

continue to coexist and forge a relationship with Paul Arnsberger and Margaret Riley are statisticians, and Melissa Ludlum and Mark Stanton are economists, with the Special Studies Special Projects Section. This article was prepared under the direction of Barry W. Johnson, Chief.

A History of the

Tax-Exempt Sector:

An SOI Perspective

1 Tocqueville, Alexis de, Democracy in America (2003), Penguin Books, London, England, p. 5962

For the most part, public-serving organizations are those that are now described under section 501(c)(3) of the Internal Revenue Code. Member-serving organizations are

those covered under other subsections of 501(c). Appendix A at the end of this article provides detailed information on organizations exempt under section 501(c).

3 See: Salamon, Lester M. (1992), , The Foundation Center, New York, NY, p. 14.4

Ibid., p. 7.

5

Chester, Ronald (1982), Inheritance, Wealth, and Society, Indiana University Press, Bloomington, Indiana, p. 95.

6

Carnegie, Andrew (2001), "The Gospel of Wealth," , editor J. Steven Ott. Westview Press, Boulder, CO, p. 68.

A History of the Tax-Exempt Sector: An SOI Perspective

Statistics of Income Bulletin | Winter 2008

106

Major Exempt Organization Legislation,

1894-Present

Tariff Act of 1894 - Earliest statutory reference to tax exemption for certain organizations. Revenue Act of 1909 - Introduced language prohibiting private inurement. Revenue Act of 1913 - Established income tax system with tax exemption for certain organizations. Revenue Act of 1917 - Introduced individual income tax deduction for charitable donations. Revenue Act of 1918 - Estate tax deduction for charitable bequests added. Revenue Act of 1934 - Set limits on lobbying activities by charitable organizations. Revenue Act of 1936 - Introduced corporate tax deduction for charitable contributions. Revenue Act of 1943 - Required first Forms 990 to be filed. Revenue Act of 1950 - Established unrelated business income tax. Revenue Act of 1954 - Modern tax code established, including section

501(c) for exempt organizations. Also, limits on political activities

established. Revenue Act of 1964- Raised the limitation on deduction for donations to public charities to 30 percent of adjusted gross income (AGI). Tax Reform Act of 1969 - Established private foundation rules, including a minimum charitable payout requirement and a 4-percent excise tax on net investment income, and raised the limitation on the deduction for donations to operating private foundations and public charities to 50 percent of AGI. Revenue Act of 1978 - Reduced the net investment income excise tax for private foundations to 2 percent. Deficit Reduction Act of 1984 - Raised the limitation on the deduction for donations to nonoperating private foundations to 30 percent of AGI and introduced other more favorable rules for donors to these organizations. Also, exempted certain operating foundations from the net investment income tax and reduced the tax to 1 percent for foundations meeting other requirements. Revenue Reconciliation Act of 1993 - Imposed a proxy tax on certain lobbying and political expenditures made by membership organizations. Tax Payer Bill of Rights 2 (1996) - Introduced intermediate sanction rules for excess benefit transactions. Tax Payer Relief Act of 1997 - Revoked tax exemption of certain organizations providing commercial-type insurance. Pension Protection Act of 2006 - Required section 501(c)(3) organizations to make their Forms 990-T available for public inspection. NOTE: For more extensive information, see Appendix B.

Government that remains into the 21st century. A

ment's recognition of the importance of the charitable and voluntary sector, and the support of its organiza- tions in the form of an exemption from income and certain other taxes. This article explores the legisla- tive history of tax exemption and presents historical exempt organizations. legislative History of the tax-exempt Sector The structure of tax exemption granted to the chari- table and voluntary sector outlined in the United

States Tax Code was developed through legislation

enacted between 1894 and 1969. Over that 75-year period, Congress established the basic principles ness activities of tax-exempt organizations that were foundations as a subset of tax-exempt organizations. Figure A shows a timeline of major legislative ac- tions relevant to tax-exempt organizations, while a more complete history can be found in Appendix B at the end of this article. e arly l egislation, 1894-1936

The privileged tax treatment that the Government

grants to charitable and member-serving organiza- tions can be traced to the earliest versions of United

States tax law. Early tax-exemption regulations

developed around three major principles. First, or- ganizations that operated for charitable purposes were granted exemption from the Federal income tax. Second, charitable organizations were required to be free of private inurement - that is, a charitable an individual related to the organization. Finally, an income tax deduction for contributions, designed to encourage charitable giving, was developed.

The Wilson-Gorman Tariff Act of 1894, one of

the earliest statutory references to the tax-exempt sta- tus enjoyed by charitable organizations, established the requirement that tax-exempt, charitable organiza- tions operate for charitable purposes. While estab- act stated "nothing herein contained shall apply to... corporations, companies, or associations organized and conducted solely for charitable, religious, or

Figure A

A History of the Tax-Exempt Sector: An SOI Perspective

Statistics of Income Bulletin | Winter 2008

107
associations." Though the law was declared uncon- stitutional by the Supreme Court in 1895, the exemp- tion language contained in the act would provide the cornerstone for tax legislation involving charitable organizations for the next century.

The Revenue Act of 1909 mirrored and expanded

the language from the 1894 act. Under this statute, tax exemption was granted to "any corporation or as- sociation organized and operated exclusively for reli- gious, charitable, or educational purposes, no part of private stockholder or individual." This importantquotesdbs_dbs27.pdfusesText_33

[PDF] Bib-12883 - France

[PDF] Bib-44942 - Anciens Et Réunions

[PDF] Bib-46666

[PDF] Bib-47992

[PDF] Bib-50997 - Fabrication

[PDF] Bib-52068

[PDF] Bib-52107 Add.1

[PDF] Bib-52176 - Fabrication

[PDF] Bib-53269

[PDF] Bib-55192

[PDF] Bib-68488 - France

[PDF] bib201010parteB - curia

[PDF] Biba - Août 1999 - Article de presse Coloré par Rodolphe

[PDF] BIBA - Des Hotels et des Iles - France

[PDF] Biba Juin 2013 - Enfance et Partage - France